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How To Be A Stock Option Landlord

Chances are, you know how the real estate market works – and how owning properties can bring you consistent income, often over long periods of time.

The same concept applies to options–without having to deal with bank loans, dodgy tenants, or unreliable contractors.

Yet most investors know next to nothing about this incredible income-generating strategy.

So how exactly do you become a stock options landlord?

By selling covered calls on stocks you already own!

Here’s how it all works (all you need is enough cash in your brokerage account, along with Level 1 options trading approval in that account):

When you buy an option, you’re really paying to rent an options contract.

Young people are used to renting, so maybe that’s not a big deal.

But just like in real life, being the landlord – NOT the renter – is how you create true, long-term wealth, with very little risk.

When you write, or sell, an option, you’re the landlord.

You get to set the terms of the trade you want.

By the way, this trading strategy works in every market—up, down and sideways (especially sideways!)

Even though we consider this a long-term strategy, most of our covered calls only last one month.

So you get to see the fruits of your labour (and our know-how) every 30 days.

Covered calls—in which you own the stock and then write an option against it—does cost more money than just buying a simple option.

Being “covered” (as opposed to “naked”) means that you have to buy the stock. But there so many advantages:

  • You get to set the terms of your options contract—price AND timing
  • You get to bank that premium income, no matter what (You’re essentially collecting cash up front, in return for agreeing to sell the stock you’ve purchased)
  • The trade can actually work against you for a short time or a small amount – and you still make money
  • And – in our experience – you can often make money selling covered calls on the SAME stock – OVER and OVER again – just like landlords who collect from their tenants each month!

And it’s happening in today’s markets more often than you might believe.

Options trading has become mainstream, with daily volumes around options on the NYSE rivaling regular common stock trading volumes.

That means a lot of demand that has to be met-and that has caused premiums for options contracts to get to historically high levels—often even All Time Highs (ATH).

Experts are seeing that they are collecting up to 100% more in the premiums they’re writing for the options they’re selling NOW… than they were in the years before the COVID retail crowd rushed into the market.

 

What that means:

Right now is a great time to SELL options to those buyers!

It’s a little like standing outside the Super Bowl and being able to sell tickets to fans who’ve travelled across the country to see their team play.

All of these retail dollars flooding into the options market has set up an incredible, low-risk, disciplined, opportunity for seasoned investors who are patient, willing to learn and want to create their own destiny—and write their own options.

Here’s How Selling an “In-the-Money” Covered Call Option Works…

Say you own 100 shares of a stock – which we’ll refer to as the theoretical ticker symbol: “ABC.”

ABC stock is trading for $70 a share. And while you’re bullish on the stock, you suspect it will trade in a narrow range over the short term – and possibly go a bit lower.

So you decide to generate some additional “landlord” income from your stock holding (100 shares) by selling (writing) an in-the-money covered call option.

You sell a covered call with a strike price of $65 ($5 lower than the current market value price) AND an expiration date just 30 days out.

That means you’ll most likely be selling your shares of ABC for $65 each – IF the buyer of the option exercises it before the expiration date (30 days from now).

Because you’ve sold a covered call option, you collect the premium income instantly – from the buyer of the option.

Let’s say the premium in this example is $6… and because each options contract represents 100 shares – you’d collect $600. ($6 x 100 shares = $600 in total premium, which is yours to keep, no matter what).

So you’ve made a quick $600 haul, but what are the possible outcomes, exactly?

 

If the Option Is NOT Exercised
by the Buyer…

Say the price of ABC stock stays below the $65 strike price by the time of the expiration date.

The buyer of the call option will probably choose NOT to exercise the option – and so the option expires worthless.

You get to keep the $600 – the “premium” – AND you get to keep the 100 shares you’d originally purchased.

You can even sell another covered call, if you choose.

 

If the Option IS Exercised
by the Buyer…

Say the price of ABC stock rises above the $65 strike price by the expiration date.

In this case, the option buyer will likely exercise the option. That means you’ll be selling your 100 shares to the buyer, at the strike price of $65 each.

However, you get to keep the $600 premium income – and you haven’t lost money on the trade (your breakeven is the original stock purchase price of $70 MINUS the $6 premium = $64 per share).

Seems like the odds – when you’re the seller of a covered call – are tilted in your favor, doesn’t it?

To see the “options landlord” strategy in action – and learn how to add real money to your portfolio the same way we do – follow this link.

Until next time,

Nathan Weiss & Keith Schaefer
Co-Founders, In The Money options trading service
Questions or comments? Reach out to us by email at: help@inthemoney.capital

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